Huntsman CORP annual report, FY2012

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Huntsman Corporation 2013 Form 10-K Summary

Period note: The supplied filing is the fiscal-year 2013 Form 10-K, filed February 11, 2014, not a 2012 Q4 filing. It reports full-year results through December 31, 2013, with 2012 and 2011 comparisons. The figures below are primarily for Huntsman Corporation on a consolidated basis unless stated otherwise.

Business context and reporting period

Huntsman is a global chemicals manufacturer operating five segments: Polyurethanes, Performance Products, Advanced Materials, Textile Effects and Pigments. Huntsman International LLC, its wholly owned subsidiary, is the principal operating company. The company employed approximately 12,000 people and operated in more than 30 countries at year-end 2013.

Financial performance and liquidity

  • Revenue: $11.079 billion in 2013, down 1% from $11.187 billion in 2012. Reported gross profit fell to $1.753 billion from $2.034 billion.
  • Margins: Gross margin was approximately 15.8% versus 18.2% in 2012; operating margin was approximately 4.6% versus 7.6%. Net income attributable to Huntsman was $128 million, or $0.53 per diluted share, versus $363 million, or $1.51 per diluted share.
  • EBITDA measures: Reported EBITDA was $889 million, down 25% from $1.187 billion. Adjusted EBITDA, a non-GAAP measure that excludes specified items, was $1.213 billion versus $1.439 billion. Adjusted net income was $390 million versus $577 million.
  • Cash flow and investment: Operating cash flow was $708 million, down from $774 million. Investing cash outflow was $566 million, including $471 million of capital expenditures. Financing cash outflow was $6 million. Cash and cash equivalents were $520 million at year-end, compared with $387 million.
  • Debt and liquidity: External consolidated debt was $3.910 billion, compared with $3.702 billion; the filing separately reports $3.916 billion including debt to affiliates. Debt-to-capitalization was approximately 65%, and about $1.8 billion of borrowings were variable-rate. Current debt was $277 million. Management reported $1.048 billion of cash and unused borrowing capacity, comprising cash and restricted cash, revolver availability and receivables-program availability.
  • Working capital and shareholder returns: Working capital was $2.0 billion, versus $1.938 billion in 2012. Dividends paid were $120 million, or $0.50 per share, up from $96 million, or $0.40 per share.
  • Quarterly reference: In Q4 2013, revenue was $2.705 billion and Huntsman-attributable net income was $41 million. In Q4 2012, revenue was $2.619 billion and the company reported a $40 million attributable net loss.

Material changes versus 2012

  • Annual net income attributable to Huntsman declined by $235 million, while revenue decreased by $108 million. Lower gross margins in Polyurethanes and Pigments, and higher restructuring and plant-closing charges, were major factors.
  • Pigments revenue fell 12% to $1.269 billion and segment EBITDA fell to $79 million from $352 million, principally reflecting lower selling prices amid high industry inventories.
  • Textile Effects revenue rose 8% to $811 million, but segment EBITDA deteriorated to a $78 million loss from a $49 million loss, largely due to restructuring, transition and raw-material costs.
  • Polyurethanes revenue increased 1% to $4.964 billion, while segment EBITDA declined 4% to $696 million. A second-quarter outage at the Rotterdam MDI facility and weaker PO/MTBE earnings weighed on results.
  • Performance Products revenue declined 2% to $3.019 billion, while segment EBITDA increased 3% to $372 million. Scheduled Port Neches maintenance reduced volumes and was estimated to cost approximately $55 million in EBITDA.
  • Advanced Materials revenue declined 4% to $1.267 billion, while segment EBITDA improved to $86 million from $54 million, reflecting lower restructuring and selling costs, partly offset by weaker volumes and margins.
  • Restructuring, impairment and plant-closing costs increased to $151 million from $92 million. The company reported approximately $180 million of savings achieved across its cost-reduction programs and targeted approximately $240 million of total savings through early 2015.

Outlook, risks and unusual items

  • Rockwood transaction: Huntsman agreed to acquire Rockwood’s Performance Additives and Titanium Dioxide businesses for approximately $1.1 billion in cash, plus assumed unfunded pension liabilities estimated at $225 million. At the filing date, the deal remained subject to approvals and was expected to close in the first half of 2014. Financing commitments included a $1.2 billion term loan and a $200 million revolver increase.
  • 2014 outlook: Management expected approximately $500 million of capital expenditures, excluding the planned acquisition, and an adjusted effective tax rate of about 35%; its stated long-term effective tax-rate expectation was about 30%. Management cited strong MDI demand in the U.S. and Asia, improving amines volumes and margins, a strong aerospace market, and improving Pigments volumes and pricing. It also flagged higher raw-material costs, European surfactant margin pressure and a weak base-liquid-resin epoxy market.
  • Operational projects: Management said restructuring and growth investments were progressing and expected to produce future EBITDA benefits. A China PO/MTBE joint venture was under construction, with completion expected in 2015; Huntsman held a 49% interest.
  • Debt and covenant exposure: Arabian Amines, a consolidated 50%-owned joint venture, was not compliant with certain loan obligations at year-end. Its $169 million outstanding debt was classified as current; Huntsman said it was in discussions with lenders and expected to resolve the matter. Huntsman stated that it otherwise believed it was in compliance with material debt covenants.
  • Legal and regulatory matters: A customer product-delivery claim had a stated possible-loss range of €0–€113 million (approximately $0–$156 million); no accrual was recorded, and Huntsman believed insurance covered liability above $10 million. Remaining titanium-dioxide antitrust claims had no estimated loss or accrual. The EPA/DOJ Port Neches flaring matter remained unresolved, with potential penalties or injunctive relief not estimable.
  • Environmental and other exposures: Environmental liabilities accrued were $27 million; management could not estimate potential excess remediation costs. Pension and postretirement plans required $171 million of contributions in 2013, with approximately $135 million expected in 2014. Chemical-industry cyclicality, raw-material volatility, foreign exchange, plant outages, environmental rules and interest-rate changes were identified as risks.
  • Unusual items and presentation: The year included a $51 million loss on early extinguishment of debt and substantial restructuring costs. Management began excluding pension and postretirement actuarial-loss amortization from certain adjusted measures in 2013; those non-GAAP measures should be considered alongside GAAP results.

Most important facts for investors to verify

  • Confirm the period: this is a 2013 annual filing, despite the request metadata referring to 2012 Q4.
  • Review the full reconciliation of adjusted EBITDA and adjusted net income to GAAP results, including restructuring and pension-related adjustments.
  • Track completion, financing, pension liabilities and realized synergies for the Rockwood acquisition.
  • Monitor the Arabian Amines covenant noncompliance, debt classification and lender resolution.
  • Assess the remaining product-delivery, antitrust, environmental and Port Neches matters, including insurance recoveries and potential cash costs.
  • Compare 2014 capital spending, pension funding, restructuring savings and segment trends with management’s stated expectations.